Business context and reporting period
Marriott International, Inc. is a global hotel operator, franchisor and licensor, with relatively few owned properties. This unaudited Form 10-Q covers the three and nine months ended September 30, 2021; comparisons are with the corresponding 2020 periods unless stated otherwise. Results continued to be materially affected by COVID-19.
Financial and operating performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $3.946 billion | $2.254 billion | $9.411 billion | $8.399 billion |
| Operating income | $545 million | $252 million | $1.115 billion | $212 million |
| Net income (loss) | $220 million | $100 million | $631 million | $(103) million |
| Diluted EPS | $0.67 | $0.31 | $1.92 | $(0.32) |
| Cash from operations | Not separately stated | Not separately stated | $745 million | $1.623 billion |
Q3 revenue growth reflected lodging recovery, unit growth and higher co-brand credit-card and residential branding fees. Cost-reimbursement revenue, largely offset by reimbursed expenses, was $2.950 billion in Q3 versus $1.789 billion; its net contribution was $33 million versus $106 million. Accordingly, reported revenue growth should be read alongside the largely pass-through nature of these amounts.
Worldwide comparable systemwide RevPAR rose 118.4% year over year in Q3 but remained 25.8% below Q3 2019; the gap versus 2019 was 19.9% for U.S. & Canada and 40.7% for International. Worldwide Q3 ADR was 4.4% below 2019. Leisure demand led improvement, while business transient and group demand remained weaker; Delta-related restrictions constrained recovery, particularly in August and in Greater China.
Liquidity, debt and capital allocation
At September 30, 2021, cash and equivalents were $772 million (cash, cash equivalents and restricted cash totaled $797 million); total debt was $9.843 billion, including $579 million current and $9.264 billion long-term. The company had $750 million outstanding under its $4.5 billion revolving Credit Facility, with $3.7 billion remaining capacity. Its current ratio was 0.5 to 1.0. Management said available cash, borrowing capacity and capital-market access were adequate for liquidity needs and reported compliance with Credit Facility covenants.
Nine-month operating cash flow fell to $745 million from $1.623 billion, primarily because of prepaid cash received under co-brand card agreements in 2020. Cash declined $97 million from year-end 2020. Long-term debt had a 3.4% weighted-average interest rate and approximately 6.7-year weighted-average maturity; 80% was fixed-rate, including swaps.
Marriott issued $1.8 billion of senior notes during the first nine months, redeemed $400 million of Series N Notes, and repurchased $1.0 billion of Series EE Notes. The repurchase generated a $164 million debt-extinguishment loss in Q3. Dividends and share repurchases remained suspended, including restrictions under the Credit Facility covenant waiver.
Outlook, management commentary and notable risks
- Management expected full-year 2021 gross rooms growth of approximately 6.0% and net rooms growth of approximately 3.5%. The development pipeline was nearly 477,000 rooms at quarter-end.
- Expected 2021 capital expenditures and other investments were approximately $525 million to $550 million, including about $180 million for maintenance capital spending and the new headquarters.
- Management described the global recovery as underway but said COVID-19 would continue to materially affect results for an unpredictable period. It cited labor shortages in certain high-demand U.S. markets and continued cost discipline.
- The nine-month effective tax rate was 0.2%, primarily reflecting a $118 million tax benefit from favorable resolution of Legacy-Starwood tax audits. The low rate is not necessarily indicative of a normal rate.
- Data-security incident litigation and government investigations remain a significant uncertainty. Marriott said additional losses are reasonably possible but could not estimate an amount or range beyond amounts already incurred; insurance may not cover all costs. Q3 incident-related expense was $4 million.
- The Sheraton Grand Chicago owner’s $300 million put option was extended to an exercise period in the first half of 2024; Marriott recorded a $300 million liability. Separately, disclosed guarantees had $224 million maximum potential future funding and $125 million recorded liability.
- Other key risks include renewed pandemic restrictions, weaker travel and group demand, owner or franchisee financial distress and hotel exits, labor and operating costs, financing access and covenants, cybersecurity, and foreign-exchange exposure.
Most important facts for investors to verify
- Whether RevPAR, occupancy and business/group travel recovery continue, particularly relative to 2019 and across international markets.
- Cash-flow conversion and liquidity, including Credit Facility availability, covenant requirements and upcoming debt maturities.
- Whether reported revenue and profit trends persist after considering pass-through cost reimbursements, the debt-extinguishment loss and tax-reserve release.
- Actual rooms growth, pipeline openings and investment spending compared with management’s 2021 expectations.
- Developments in Starwood data-incident litigation and investigations, potential uninsured costs, and the Sheraton Grand Chicago put option.